Reconciling Finance with HR

Organizations that are not properly resourced cannot grow revenues and compete in the market to achieve their full potential. Talent is out there, but it is hard to attract and retain. When faced with growth imperatives, organizations must consider and plan for evolving variables that influence (and can sometimes inhibit) the effective hiring and deployment of talent, including:

In this mutating mix of macro conditions, integrated business planning (IBP) is gaining momentum, given its fundamental purpose of activating all the data that matters across finance, human resources (HR), and sales into a single platform to drive decisive planning. Workforce management and planning is an integral part of an integrated business plan because it leverages historic actual information to create a realistic budget that empowers organizations to hire, maintain, and grow teams that power thriving businesses. As organizations emerge from the COVID-19 pandemic and forge the workplace of the future, the new realities we face have shaped an employee life cycle that is more evolved, more digital, and more dynamic than ever before.

In collaboration with Jedox Diamond Certified Partner, the better decisions group (bdg), this report explores workforce planning through both a strategic and tactical lens and provides insights and a framework of how new realities come to life both on the ground and in the C-suite.

On the surface, it may appear that Human Resources (HR) teams, who must source, attract, sign, and retain talent, and finance teams, who ultimately ensure this talent is compensated, incentivized, and rewarded, are solely responsible for workforce planning. This is not entirely accurate: there are other stakeholders involved – specifically executive management and department heads – and the objectives and obstacles they face also impact the planning process from a strategic perspective.

How, then, to get all four stakeholders working from the same page?

It all begins with having all the data that matters in a single platform that provides one source of truth.

Just as employers are increasingly striving to serve the needs of employees, workforce planning must evolve to serve the fundamental needs of the organization.

Not having the right data can drive a wedge between finance and HR teams, a disconnect that can slow or even prevent the hiring of the talent an organization needs to prosper. In addition, regulations regarding data privacy and confidentiality require HR and finance data to be stored in silos, which can make efficient and effective hiring decisions much more difficult. Also, cost variations in compensation, training, and benefits and other allowances can vary widely from region to region and between individuals. These numbers must be derived from overall sales numbers and automatically accounted for, becoming another source of pain for finance teams.

Then there are cultural and communication factors that widen the disconnect between HR and finance. HR’s inability to quantify inherently qualitative data points (“gut feelings”) related to the art and science of human capital can cause HR to lack credibility in the eyes of finance teams. The communications gap can cause conflict, with both functions speaking different functional languages. This conflict feeds on disconnection, miscommunication, credibility gaps, and everyone’s collective wasted time attempting to overcome the fundamental problem of lacking data.

These factors in combination result in a chaotic budgeting process that produces inaccurate workforce plans, hasty hiring decisions that preclude prioritizing strategic hires, and subsequent talent shortages. For executive management teams and department heads, performance and growth targets are endangered, posing an existential threat to the organization.

The COVID-19 pandemic has had an enduring impact on the traditional employee life cycle. It also activated a new and crucial partnership between Finance and HR as they teamed up to care for the health of the organization’s finances and employees.

In recruiting, new talent pools have emerged at the same time as talent scarcities have arisen, and an employer’s ability to access these pools, take a deeper look into cost lines, and identify strategic hires has assumed new importance.

The onboarding experience is now often virtual. An increased risk of early attrition necessitates mentorship and coaching, making the onboarding processes more of a team effort.

Learning and development (L&D) now emphasizes constant upskilling and reskilling, due in part to higher employee expectations, as well as virtual networking and novel skills for the distance economy.

Combined with L&D is progression and performance, with the pandemic merging home life with work life and normalizing virtual ways of working and digital collaboration tools.

With the enablement of remote work, employee engagement necessitates agile goal setting, ongoing coaching, and investment in employer branding and communication tools.

The pandemic also witnessed employees prioritizing their health, safety, and well-being throughout the retention and exit stages. Specific to retention, employers realized they had to bring more than a paycheck to the table to ensure a superior culture fit and skill fit. The myriad advantages of this shift include nurturing high-performing teams, managing churn, and retaining institutional knowledge, which in turn achieve reliable FTE and cost forecasts.

Finally, the exit phase became more of a focus area as the Great Resignation unfolded, and organizations faced unanticipated levels of attrition and a massive collective loss of institutional knowledge. By understanding the root causes of attrition, the composition and costs of their people, and optimal tenure, smart employers have learned to define and plan for a healthy churn rate that sees some employees retained and promoted while others transitioned or exited.

With remote work continuing to prevail, organizations are rethinking talent sourcing and retention strategies as part of a post-pandemic employee life cycle that is evolving and adaptable. It’s a life cycle that should see more connections and less conflict, particularly between finance and HR teams. This in turn will lead to more confidence and decisiveness in workforce planning.

Gartner commented on this evolution in a recent report, stating that “Ongoing changes in the way people work have permanently transformed employees’ relationship with and expectations of work.” Employee expectations in a competitive talent market can no longer be viewed by employers as frivolous or optional. Just as employers are increasingly striving to serve the needs of employees, workforce planning must evolve to serve the fundamental needs of the organization.

Gartner’s definition of people analytics encapsulates the core ingredient in successfully generating insights and moving programs forward to keep employees happy and productive: data.

“People analytics is the collection and application of talent data to improve critical talent and business outcomes. People analytics leaders enable HR leaders to develop data-driven insights to inform talent decisions, improve workforce processes and promote positive employee experience.”⁴

And related, there’s a benefit to having data-driven insights using workforce analytics at hand, and that’s gaining the ability to knowledgably and credibly tailor rewards and recognition to attract and retain great talent. These insights can reveal distrust, disengagement, and apathy building among individuals and whole departments, and, if caught early enough, can enable the organization to take countermeasures to win them back.

To understand what drives employee engagement, polling the workplace, capturing the results, and analyzing them is the first step. Typically, analytics engines find that good relationships (particularly with managers), a sense of purpose (in part due to belief in the leadership to guide the ship and keep promises), and autonomy are the key drivers to engage employees.

People analytics also can reveal what retains employees. Superior onboarding practices, competitive pay scales, and aids to establishing social ties at work come to mind, all of which can be identified, crafted, and delivered to reduce voluntary turnover. By understanding what keeps employees, and what sends them packing, attrition can be better managed.

According to Harvard Business Review, people analytics is an incredibly powerful and indispensable tool; however, such quantitative models are intended to assist, not replace, human judgment. “To get the most out of AI and other people analytics tools, you will need to consistently monitor how the application is working in real time, what explicit and implicit criteria are being used to make decisions and train the tool, and whether outcomes are affecting different groups differently in unintended ways.”⁵

A framework powered by a planning and performance management platform can help organizations develop a holistic workforce plan that serves the needs of four key stakeholders, including executive management, department heads, HR, and finance.

The executive management team sets the corporate objectives by asking strategic questions and posing multiple scenarios:

Once these questions around corporate strategy and goals have been answered, they can be cascaded to regions and departments. Department heads can then define workforce requirements, given their familiarity with how many people and which skill sets are required to execute to plan. While department heads begin their work, HR checks other personnel cost drivers, such as tax and insurance considerations, for the new planning period.

The departments in the process flow also undertake gap analyses – between current state and future state – to ensure a match with the organization’s strategy and goals. They plan resource needs, basing them on various HC and FTE factors, such as start and leave dates, salaries, and benefits and allowances. The departments include in their plans any supplementary costs, such as those related to training and travel, and general administrative costs.

Armed with the departmental plans, HR can confidently begin their workforce planning. They begin with checking and then adding the departmental inputs into the HR budget, including company-wide training and departmental training. Also in this phase, HR applies their expertise to perform key activities in both financial and traditional HR terms.

The HR team determines the salaries, variable compensation, and benefits for each role, using outside industry data (with these values varying by region, as well as by seniority, education, and other factors). HR then maps out the employee life cycle costs, including professional development, retention, and separation costs. HR provides this information to FP&A teams by way of a shared planning and performance management platform.

Simultaneously, the HR team collaborates with department heads to design or modify the organization to map to the needed skills and people, while meeting cultural and other objectives. In this instance, HR uses the planning software to manage the hiring, onboarding, and employee life cycle process.

The work by HR facilitates effective engagement and collaboration with the FP&A team so that numbers from HR are incorporated into relevant cost centers, P&L data, and operational planning activities and reports. This ensures that HC costs are rationalized with the corporate objectives. This is an important stage in the process flow, as FP&A teams need to check the potential results and impacts on the organization’s overall P&L level and perform a breakdown at the cost-center level.

Where staffing costs may be too high, the planning software gives FP&A teams real time visibility so they can quickly share this information with HR, enabling them to make adjustments: a collaboration that is achieved via a common dashboard on the planning software.

In this final phase of the workforce planning cycle, HR and finance collaborate to approve new hires, and together they can track progress by using common dashboards and workflows in the planning software. The entire process takes an iterative approach, so that initiatives and plans can be compared and managed in several different scenarios.

By collaborating closely on finance and HR KPIs, the organization is poised to meet revenue and other key objectives, with teams that are staffed to execute the plan.

Workforce planning that is unified and strategic can drive long-term value by providing organizations with processes and tools that deliver competitive advantage in talent, growth, innovation, and the ability to both raise and deploy capital effectively. Strategic workforce planning begins with assessing the current state of the organization’s workforce by asking foundational questions:

There is intense competition for talent, and it is imperative that organizations move quickly to hire and retain talent while setting expectations for employees regarding their productivity and performance. When setting expectations, the ability to calculate target productivity ratios of employees against industry benchmarks is illuminating for boards and potential investors. It’s also essential for employees to feel confident that the expectations their managers have of them are determined methodically and with data informed by these productivity ratios. Take, for example, the annual contract value (ACV) achieved per salesperson. The data might show whether the firm has too many people or that their productivity is below target. These insights can start the process of aligning expectations with employees.

The ability to quickly orchestrate, execute, and track a plan based on a single source of truth is essential to driving growth. A plan that can account for potential delays in hiring is key to ensuring budget consistency and accuracy. Transparency and tracking are also key to visualizing and communicating growth. Executive teams must be able to quickly and reliably answer questions posed by investors or other stakeholders, such as where do we stand against plan? Are we still in budget? When can we kick off the next recruitment wave? Who do we need to hire and when, to achieve our targets?

Workforce planning data is increasingly relevant in due diligence processes in which investors evaluate companies for potential investment. By having consistent workforce data, a company’s ability to source capital is improved. First, productivity ratio data shows whether the business is, essentially, under control. That agility and flexibility is important as markets go from bullish to bearish, resulting in falling valuations. Workforce planning can deliver multiple scenarios and varied plans, including those that account for varying amounts of funding.

In the face of unprecedented uncertainty, the ability to quickly and accurately evaluate budget risks and potential upsides can empower CFOs to be decisive when allocating capital. A unified workforce planning solution empowers them to quickly manipulate their workforce and the costs associated with it, thus enabling them to deploy capital elsewhere as needs arise.

A PwC report⁶ found that 86% of employees prefer to support or work for companies that care about the same issues they do. A workforce planning solution that tracks DEI metrics, together with pay equity and salary reviews, provides foundational controls to illuminate and address cultural and systemic biases at every level of an organization. A single source of truth combined with total transparency can reveal all manner of inequities and prompt insights into solutions.

At the executive level, the impact of having clean, current, and reliable workforce data can help executive teams uncover what they didn’t know was possible. Their ability to imagine and produce multiple scenarios in real time to inform decisions that will positively affect the trajectory of the company cannot be underestimated. Scenarios that show the impact of, for example, a reduction in ACV next year by 10%, and where cost savings could occur to cushion the effect on shareholder return, can help an organization deliver on its plan.

According to EY research, 20% of employees said addressing pay equity is the single most important action a company should take to improve DEI.¹

An organization’s workforce is its lifeblood. Human capital is more coveted than ever in a talent market that is increasingly global and ruthlessly competitive. As the pandemic wanes and remote work prevails, organizations are rethinking talent strategies, reconstructing their employee life cycles, and cultivating more connection between finance and HR teams. Organizations that close the data gap between workforce plans and FP&A are in a stronger position to link up business and talent objectives – and to deliver on both.